On October 7, 2015, the East Brabant District Court (ECLI:NL:RBOBR:2015:5797) held that a share issue can lead to joint and several liability of both the director personally and group companies towards a pledgee.
The case was as follows:
A granted a loan to B and obtained a pledge on 50% of the shares in B's subsidiary C as security for this loan. Following a share issue by entities affiliated with B (hereinafter referred to as the B Group) A's pledge has been diluted to 4% of the shares in C. X was the sole director of Group B and C and was involved in both establishing the pledge on the shares and the share issue.
According to the Court, X, in his capacity as director of Group B and C, should have ensured that justice was done to the position of A, for example by providing adequate replacement security. After all, 50% of the shares in C are held by companies controlled by him. He is personally seriously reproached for his actions (or omissions) in this regard. The Court further finds that the knowledge and actions of X, as the sole director of Group B, can be attributed to Group B. For that reason alone, regardless of any applicability of Article 6:166 of the Dutch Civil Code, Group B is jointly and severally liable, alongside X, for the damage suffered by A. According to the Court, the requirements of Article 6:166 of the Dutch Civil Code have also been met.
The Court reached this conclusion based on the following circumstances:
There is no rule prohibiting a share issuance if a lien already exists on (some of) the existing shares in a company. However, this does not mean that such an issuance, regardless of the interests of the lienholder, is always permissible. Group B acts as if A were any creditor who had secured security for the performance of the loan agreement and knowingly accepted the risk of dilution.
According to the Court, this representation of the facts is incorrect. A had been doing business with the group of X for decades and in mid-2010 he had a claim on the group of several million euros. In light of the long-standing relationship, it was decided not to pursue bankruptcy, but a large debt package was restructured. As part of the restructure, the amount of EUR 279,000 still owed to A was converted into a loan from A to B. The many years of business contact between A and (the group of) X gave reason not to dig in their heels in 2010, but to adopt a flexible attitude towards (the group of) X. For example, no rock-solid security was provided when converting the debt into the loan. A pledge on 50% of the shares C with a nominal value of only NLG 20,000 means that the security actually lay in the execution value of those shares, or the value of the company, with all associated risks.
Given these circumstances, the Court finds that A acted negligently by participating in the share issue without considering A's interests, and that A was disadvantaged by the course of events. Given the circumstances of this case, it is inappropriate to simply say, as Group B does, that A could have mitigated the risk of dilution and "should have arranged its affairs better.".
Although the Court came to the aid of the pledgee in this matter, a pledgee is generally well advised to arrange his affairs properly in advance.
